rokko holdings 2010 annual report
TRANSCRIPT
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2010ANNUAL REPORT
ROKKO HOLD INGS LTD.
Strategised for Growth
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CORPORATE INFORMATION
BOARD OF DIRECTORS
Tey Kim Hwee
Non-Executive ChairmanLim Chong Chen
Managing Director
Lim Yee Chuan
Executive Director and
Financial Controller
Lee Sen Choon
Lead Independent Director
Wai Chee Leong
Independent Director
AUDIT COMMITTEE
Lee Sen Choon (Chairman)
Tey Kim HweeWai Chee Leong
NOMINATING COMMITTEE
Wai Chee Leong (Chairman)
Tey Kim Hwee
Lee Sen Choon
REMUNERATION COMMITTEE
Wai Chee Leong (Chairman)
Tey Kim Hwee
Lee Sen Choon
COMPANY SECRETARY
Vincent Lim Bock Hui
REGISTERED OFFICE
61 Kaki Bukit Road 2
Singapore 417869
Tel : 65 6749 5885
Fax : 65 6747 5979
Website : www.rokkogroup.com
SHARE REGISTRAR
Boardroom Corporate &Advisory Services Pte. Ltd.
50 Raes Place
#32-01 Singapore Land Tower
Singapore 048623
Tel : 65 6536 5355
Fax : 65 6536 1360
INDEPENDENT AUDITORS
Mazars LLP
Certifed Public Accountants
133 Cecil Street #15-02
Keck Seng TowerSingapore 069535
Tel : 65 6224 4022
Fax : 65 6225 3974
Partner in-charge :
Chang Fook Kay
(Date o appointment :
since FY ended
31 December 2007)
PRINCIPAL BANKERS AND
FINANCIAL INSTITUTION
United Overseas Bank Limited
80 Raes Place, UOB Plaza 1Singapore 048624
ORIX Leasing Singapore Limited
331 North Bridge Road
#19-01/06 Odeon Towers
Singapore 188720
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CONTENTS
About Us
Message to Shareholders
Operations Review
Board o Directors
Key Management Sta
Corporate StructureFinancial Highlights
Financial Contents
01
02
04
06
08
0910
12
Established in 1994, Rokko Holdings Ltd. (Rokko) and together with its subsidiaries(the Group) are a precision engineering group that provides automated equipment
and precision engineering services to customers in the semiconductor and electronics
industries. Rokko has been listed on the Singapore Exchange Securities Trading Limited
(the SGX-ST) since October 2007. Its manuacturing acilities are located in Singapore
and Malaysia and it has an established presence in Taiwan. Rokkos business is divided into
three (3) segments Equipment, Stamping and Tooling.
The Equipment Division designs, develops and manuactures customised automated
equipment specifc to customer requirements under the Rokko and Finix brands. The
Stamping Division provides connector stamping and plating services to manuacturers inthe electronics industry. The Tooling Division designs, develops and manuactures precision
tools used in the ront and back-end semiconductor manuacturing processes.
Rokkos customers include established worldwide names such as the Texas Instruments
group o companies, United Test and Assembly Center Ltd, Formosa Advanced
Technologies Co., Ltd, Molex Singapore Pte Ltd, STATS ChipPAC Ltd, Singapore Dai-
ichi Pte Ltd, the Unisem group o companies, Semiconductor Manuacturing International
Corporation, Kulicke and Soa, the Infneon group o companies, the Panasonic group o
companies and Micron Semiconductor Asia Pte Ltd. Rokko had over 370 employees as
at 1 March 2011.
ABOUT ROKKO GROUP
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MESSAGE TO SHAREHOLDERS
Dear Shareholders,The Board o Directors (the Board) o Rokko Holdings Ltd. (Rokko) ispleased to present our annual report or the fnancial year ended 31 December(FY) 2010. Following the wrenching global fnancial crisis triggered bythe U.S. sub-prime crisis, the latest fnancial year under review has beensuccessul and eventul on several counts. We recorded our highest proft
growth as a listed company, rolled out new products which we developedin-house, relocated our headquarters, embarked on regional expansion andinitiated our largest-ever acquisition.
Financial ScorecardFY2010 was a year when the global semiconductor industry raced tomake up or the downturn in the previous two (2) years. The sector as awhole experienced worldwide surge in demand which came on the backo the introduction o new smartphones and the hugely successul tabletpersonal computers such as iPads. Semiconductor companies rampedup operations to meet the increasing demand or new electronic devices. The Semiconductor Industry Association (SIA) reported that worldwidesemiconductor sales or 2010 reached a record US$298.3 billion, a year-on-year increase o 31.8% rom US$226.3 billion recorded in 2009.
Against this backdrop, our net proft ater tax or FY2010 soared by 142.0%to a record high o S$4.3 million rom S$1.7 million in FY2009, as demand orour products across the three (3) business divisions increased with signifcanthigher gross proft contributions rom our Stamping and Tooling Divisions.Turnover or FY2010 was S$42.6 million, 44.3% higher than S$29.5 millionin FY2009.
Earnings per share (based on a weighted average o 154,225,203 shares)rose to 2.76 cents in FY2010 rom 1.20 cents in FY2009 (based on a weightedaverage o 146,477,510 shares). Net asset value per share increased to16.10 cents as at 31 December 2010 (based on 160,000,000 shares) rom13.33 cents as at 31 December 2009 (based on 145,645,000 shares).
Our fnancial position remained strong with cash and cash equivalentso S$12.8 million and net gearing o 0.38 times at the end o FY2010, in
comparison with S$9.0 million and 0.50 times, respectively, at the end oFY2009.
DividendsTo reward our shareholders, the Board proposed a fnal dividend o 0.5 centper share, on top o the 0.5 cent interim dividend per share paid earlier inSeptember 2010, bringing the total dividend or FY2010 to 1.0 cent pershare, representing 37.5% o net proft or FY2010 and a yield o 7.1% basedon its closing share price o S$0.140 on 14 March 2011.
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Commitment to Research and Development (R&D) andCustomer RecognitionOur fnancial perormance underscores the importance ocontinuous investment in R&D, even during the downturn. Asa result o our eorts, our RS8000 series sawing singulation
systems saw increased orders in FY2010. During the fnancialyear under review, we began selling the FX300 Ball Mountersystem under the Finix brand. The Group has also introducedthe RS5000 pick-and-place system which has started tosee traction among customers that supply the automotiveindustry.
R&D will continue to be a cornerstone o our strategy. Bycontinually developing and introducing new cutting-edgeproducts, we are able to help our customers improve costefciency and time to market. As a result, we not only deepenour relationship with our customers but also strengthen ourposition in the market or such specialised semiconductorequipment.
Reecting the success o our R&D eorts, our wholly-ownedsubsidiary, Rokko Systems Pte. Ltd., which designs, developsand manuactures customised automated equipment specifcto customer requirements under the Rokko and Finixbrands, won the prestigious 2009 Supplier Excellence Awardrom the semiconductor giant, Texas Instruments (TI). Winningthis accolade or the second time is a testament to the highlevel o customers satisaction that Rokko has achieved.
Signifcant Corporate DevelopmentsIn May 2010, the Group placed out 15 million new shares at14.0 cents each to private investors, raising net proceeds oS$2.0 million. The proceeds have been allocated or R&Dpurposes and the expansion o Rokkos business in thePeoples Republic o China (PRC). The Group has also
initiated a series o presentations to the investment communityto raise its investor profle.
During the fnancial year under review, we relocated ourcorporate headquarters to 61 Kaki Bukit Road 2, a new buildingthat we acquired to house the expansion and consolidation oour Equipment Division.
On 31 December 2010, the Group announced that it hadentered into a sales and purchase agreement to acquire 100%equity interest o Jade Precision Engineering Pte Ltd (JPE), aspecialist in lead rames manuacturing in the semiconductorindustry, or a purchase consideration o S$8.0 million in cash(the Acquisition).
On 15 February 2011, our shareholders approved the Acquisition at the extraordinary general meeting and theAcquisition was completed on 28 February 2011.
The Road Ahead Outlook and Future DirectionAccording to the SIA, worldwide semiconductor sales in 2011is expected to grow by 6.0% to US$318.7 billion, ollowedby a growth rate o 3.4% to US$329.7 billion in 2012. Thesectors perormance in the Asia Pacifc region will continueto be underpinned by the growth in demand or smartphones,new mobile devices as well as personal computers.
Rokkos strategy combines continuous cost and operationalimprovements, R&D, geographical expansion and reaping
synergies rom our recent Acquisition.
In fnancial year ending 31 December 2011, we will continueto aggressively market our RS8000 series sawing singulationsystems, RS5000 pick-and-place system and the FX300 BallMounter system, both in Southeast Asia and the PRC.
We have begun eorts to develop business opportunities inthe PRC, especially Chengdu and Shanghai where most o thesemiconductor activity takes place. The responses have beenencouraging with more than 20.0% o our revenue in FY2010derived rom the PRC and Taiwan, as compared to less than4.0% in FY2009.
Having relocated to the new corporate headquarters, theGroup is reviewing the most optimal use o its various acilities,including possible disposals o some non-core properties. Theactory located at Nusa Cemerlang Industrial Park in Iskandar,Malaysia (purchased in March 2010), which will house theexpansion o the Groups Stamping and Tooling Divisions,is expected to be ready by the second hal o 2011 and tocommence operations by early 2012. With the addition o the
new capacity, we will review our expansion plans in the PRC.
Rokko Leadrames Our Recent Acquisition At this juncture, allow me to share our plans behind theAcquisition (JPE has now been renamed to Rokko LeadramesPte. Ltd. (Rokko Leadrames)). Despite our growth throughthe years and continued investments in R&D, we lacked severalareas o competency needed to oer a more compelling valueproposition to our customers.
Through Rokko Leadrames, Rokko is now able to includesemiconductor lead rames manuacturing and electroplatingbusinesses to its existing range o semiconductor equipment,consumable tooling and connector stamping businesses. Wehave a more complete product oering o semiconductor base
materials and consumable tools required or a cost-efcientback-end semiconductor assembly. At the same time, Rokkowill be able to balance the growing cyclical semiconductorcapital equipment business with the more stable business inconsumable tooling, connectors stamping and semiconductorbase material products.
The Group will ocus on streamlining and improving theoperations and perormance o Rokko Leadrames and theGroup. While the Group strives to pursue cost efciencies, wedo not expect Rokko Leadrames to be proftable in fnancialyear ending 31 December 2011 due to the potential costsincurred to upgrade and modernise its existing machinery andits operations.
AppreciationFY2010 has been a year o growth and one o strategicimportance. I wish to thank all our management and sta ortheir dedication, our directors or their guidance, our customersand business partners or their continuous support, and notleast, our shareholders or your unrelenting aith and trust inRokko.
Gary LimManaging Director
March 2011
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OPERATIONS REVIEW
Equipment Division
The Equipment Division designs, develops and
manuactures customised automated equipment specifc
to customer requirements under the Rokko and Finix
brands.
Revenue rom the Equipment Division increased by
30.8% mainly due to higher capital expenditure by
our major customers in the frst hal o FY2010. The
Equipment Division contributed S$26.3 million or 61.7%
to the Groups revenue.
Gross proft margin or the Equipment Division decreased
by 4.9 percentage points rom 35.7% or the fnancial
year ended 31 December 2009 (FY2009) to 30.8%
or the fnancial year ended 31 December FY2010
(FY2010), due to the impact o the weakening US Dollar
and the discounted selling prices or older-generationequipment.
The RS8000 series sawing singulation system and the
FX300 Ball Mounter system were largely welcomed by
customers who were seeking higher productivity with
lower cost o equipment ownership. The Group has
also recently introduced the RS5000 pick-and-place
system with state-o-the-art technology and user riendly
unctions and it is beginning to see traction among
customers.
Research and development (R&D) eorts remain
as our ocus in order to provide our customers with
better products at competitive prices. Currently, we are
developing advanced versions o the RS8000, RS5000
and Ball Mounter systems with higher efciency and
improved unctionality.
Stamping Division
The Stamping Division provides connector stamping
and plating services to manuacturers in the electronics
industry.
Revenue rom the Stamping Division increased by 91.5%
mainly due to higher demand rom our major customers,
and this division contributed S$10.8 million or 25.3% to
the Groups revenue.
Gross proft rom the Stamping Division increased rom
19.3% in FY2009 to 27.3% in FY2010, an increase o
8.0 percentage points. The improvement was due to
cost reduction measures and better capacity utilisation
rate which increased 24.7 percentage points to 61.1%
in FY2010, as compared to 36.4% in FY2009.
The Stamping Division also undertook plating services
with minimal proft margin to satisy the demand rom
our customers. Prior to the acquisition o Jade Precision
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Engineering Pte Ltd (now known as Rokko Leadrames
Pte.Ltd.) (the Acquisition), the plating services had been
subcontracted to third parties. With the Acquisition, the
Group is able to carry out the plating services in-house.
The Group expects to reap benefts rom the in-house
plating services rom the second hal o the fnancial year
ending 31 December 2011 (FY2011).
Tooling Division
The Tooling Division designs, develops and manuactures
precision tools used in the ront and back-end
semiconductor manuacturing processes.
The demand or products rom the Tooling Division
recovered to pre-crisis levels ater the economic
turnaround in the second hal o FY2009. Revenue rose
by 46.3%. The Tooling Division contributed S$5.5 millionor 13.0% to the Groups revenue.
With the improved capacity utilisation and benefts
rom cost-cutting, the Tooling Division experienced an
increase in its gross proft margin by 14.6 percentage
points rom 24.5% in FY2009 to 39.1% in FY2010.
The average capacity utilisation rate improved 34.0
percentage points to 67.7% in FY2010 as compared to
33.7% in FY2009.
The Tooling Division will continue to support the growth
o the Equipment and Stamping Divisions as well as
provide our customers with high quality precision tools
at competitive prices.
Research & Development
During FY2010, the Group spent S$1.3 million on R&D,
o which S$184,000 was capitalised. Since the fnancial
year ended 31 December 2007, the Group has spent
an aggregate o S$4.8 million on R&D, o which S$1.9
million has been capitalised.
R&D expenses accounted or more than 80% o the
increase in total operating expenses in FY2010. It included
S$263,000 or amortisation o deerred R&D expenses
and S$849,000 or manpower and component costs
incurred or the improvement o the Groups existingproducts ranges.
The Group consistently commits about 5% o revenue
to R&D each year and will continue to invest in R&D in
FY2011, with a ocus on the Equipment Division.
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BOARD OF DIRECTORSBOARD OF DIRECTORS
Wai Chee LeongIndependent Director
Lee Sen ChoonLead Independent Director
Tey Kim HweeNon-Executive Chairman Lim Yee ChuanExecutive Director andFinancial Controller
Lim Chong ChenManaging Director
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Tey Kim HweeNon-Executive Chairman
Tey Kim Hwee is our Non-Executive Chairman and
has been our Director since our incorporation on
30 September 2003. He was one o our ounding
shareholders in 1994. Mr Tey is currently the
managing director o Palmas Freight Sdn Bhd, a
Malaysian company ounded by him in 1987. He
holds Higher Stage Certifcates in Accounting,
Economics and Commercial Law rom the London
Chamber o Commerce and Industry.
Lim Chong ChenManaging Director
Lim Chong Chen is our Managing Director and has
been our Director since our incorporation on 30
September 2003. He manages the operations o
our Group, and is responsible or the Groups overall
perormance as well as charting and reviewing our
corporate direction and business strategies. He was
one o our ounding shareholders in 1994 and has
steered our Company onto the path o providing
precision engineering services to customers in
the semiconductor and electronics industries. Heis instrumental in the business development and
operational aspects o our business. Since 1994,
our Group has grown rom about 25 sta in a atted
actory in Singapore to over 200 sta with operations
in Singapore and Malaysia as at 31 December 2010.
Mr Lim holds pre-university qualifcations and a
Certifcate in Computer Programming and Inormation
Processing rom City and Guilds o London Institute.
Lim Yee ChuanExecutive Director andFinancial Controller
Lim Yee Chuan is our Financial Controller and was
appointed as our Director on 30 May 2007. Ms Lim
is overall in charge o the fnancial and management
reporting, as well as the human resource unction o
our Group. She has more than 10 years o working
experience in a similar feld in established companies
prior to joining our Group. She holds a proessional
accountancy certifcate issued by the Association
o Chartered Certifed Accountants and is a non-
practising member o the Institute o Certifed Public
Accountants o Singapore.
Lee Sen ChoonLead Independent Director
Lee Sen Choon was appointed as the Lead
Independent Director o our Company on 7
September 2007. He has been a Partner at UHY Lee
Seng Chan & Company, a certifed public accounting
frm in Singapore since 1984. He has more than 30
years o experience in accounting, auditing, taxation
and corporate secretarial work. Mr Lee holds aBachelor o Science (Honours) degree rom the then
Nanyang University and a Post-Graduate Diploma in
Management Studies rom the University o Salord,
United Kingdom. He is a member o the Institute o
Chartered Accountants in England and Wales and a
practising member o the Institute o Certifed Public
Accountants o Singapore.
Wai Chee LeongIndependent Director
Wai Chee Leongwas appointed as an IndependentDirector o our Company on 7 September 2007. He
is currently a director and shareholder o Dominion
LLC, a law frm established in Singapore in 2004.
Prior to that, he was a journalist, then an associate
and later a partner in law frms. He holds a Bachelor o
Laws (Honours) Second Class Upper Division degree
rom the University o London, London School o
Economics.
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KEY MANAGEMENT STAFF
Cheh Mei Lee is our Accounting Manager and her
duties include the preparation o the accounts or our
Group. She has more than 14 years o experience in
accounts and administration unctions prior to joining
our Group in January 2003. Ms Cheh holds a Higher
Stage Group Diploma in Accounting rom the LondonChamber o Commerce and Industry.
Chey Long Wan is our Operations Manager and his
duties include overseeing the production and qual-
ity management unctions o our Stamping Division.
Prior to joining our Group in May 2004, he had been
a design engineer with a company in Singapore rom
1999. Mr Chey holds a Diploma in Mechanical Engi-
neering rom the Ungku Omar Polytechnic, Malaysia.
Jang Deok Chun is our Head o Assembly and
Test, Equipment Division and oversees all our existing
product and new product research and development
work carried out or our Equipment Division. His main
responsibilities include overseeing the assembly, pro-
gramming, wiring and testing o our existing and new
equipment. Prior to joining us in May 2005, he had
worked as a senior engineer in the sotware depart-
ment o a Korean company rom 2000 where he was
responsible or the sotware and electrical test or new
equipment. Mr Jang holds a Bachelor o Engineer-
ing degree (Control and Instrumentation Engineering
Major) rom Gyeongsang National University, South
Korea.
Shen Xue Fangis our Head o Research and De-
velopment, Tooling Division. She manages all the
research and development work carried out or our
Tooling Division. Her responsibilities include the de-
sign and development o new systems, improvement
o drawings, design o assembly parts, quality control
and supporting all other departments in the Tooling
Division. Prior to joining our Group in July 1999, she
had worked as a design engineer in a company in
China where she was responsible or designing and
developing trim and orming die sets. Ms Shen holds
a Masters in Mechanical Engineering rom the XidianUniversity, PRC and a Master o Science (Electrical
Engineering) rom the National University o Singa-
pore.
Lim Yoke Meinis our Administration Manager and
is responsible or the administrative matters o our
Group, including those related to accounting, human
resource and intellectual property. She reports to our
Financial Controller on such matters. She also assists
our Accounting Manager with the accounts o Rokko
Systems. Prior to joining our Group in June 2004, shehad worked in Malaysia where she perormed ad-
ministrative duties and was involved in the ISO9001
projects. Ms Lim holds a Bachelor o Arts (Honours)
degree in Business Studies with Marketing rom Mid-
dlesex University, United Kingdom.
Seng Kwong Seng is our Toolroom Manager and
is in-charge o quality control as well as production
and material control or our Tooling Division. Prior to
joining our Group in January 1993, he was a team
leader in the grinding department o a company in
Singapore. Mr Seng holds a National Trade Certifcate
Grade Two in Tool and Die Making (Press Tool) rom
the Vocational and Industrial Training Board, Singa-
pore. He also received a Cratman Certifcate rom
Brown Boveri Government Training Centre Singa-
pore.
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CORPORATE STRUCTURE
Rokko MechatronicsPte Ltd
(Singapore)
Rokko SystemsPte Ltd
(Singapore)
Rokko TechnologySdn. Bhd.(Malaysia)
Rokko VenturesPte Ltd
(Singapore)
RokkoTechnologyPte Ltd
(Singapore)
ROKKO HOLDINGS LTD.
Rokko MaterialsPte Ltd
(Singapore)
Rokko StampingPte. Ltd.
(Singapore)
Rokko LeadframesPte. Ltd.
(Singapore)
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ROKKO HOLDINGS LTD | ANNUAL REPORT 2010
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REVENUE NET PROFIT
50
40
30
20
10
0
S$ million
19.9
29.5
42.6
FY2010FY2009FY2008
CAGR
5
4
3
2
1
0
1.0
1.8
4.3CAGR
107.4%
FINANCIAL HIGHLIGHTS
S$ million
EBITBA
S$ million
CAPITAL EXPENDITIURE
8
7
65
4
3
2
1
0
1.5
1
0.5
0
S$ million
RESEARCH ANDDEVELOPMENT EXPENSES
S$ million
8
7
65
4
3
2
1
0
REVENUE BY
BUSINESS
SEGMENT
Stamping25.3%
Tooling13.0%
Equipment61.7%
REVENUE BY
GEOGRAPHICAL
REGION
Singapore33.8%
China & Taiwan20.1%
Philippines31.5%
Others6.0%
Malaysia8.6%
FY2009FY2008 FY2010
FY2010FY2009FY2008 FY2010FY2009FY2008 FY2010FY2009FY2008
3.5
4.6
8.0
3.0
1.9
7.5
0.6
1.21.0
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FY2010 FY2009
Revenue
Gross prot
Prot before taxation
Taxation
Prot after taxation
Other comprehensive income
Attributable to:
Equity holders of the company
29,495
9,178
2,029
(268)
1,761
(62)
1,699
42,584
13,207
4,818
(556)
4,262
1,694
5,956
Results Of Operations For Year Ended 31 December 2010
INCOME STATEMENTS$000
Group Increase/(Decrease)
44.3%
43.9%
137.5%
107.5%
142.0%
n.m.^
250.6%
31-Dec-10 31-Dec-09
ASSETS
Non-current assets
Current assets
TOTAL ASSETS
EQUITY AND LIABLILITIES
Capital and reserves attributable to equity holder of the compay
Total equity
Non-current liabilities
Current liabilities
Total libilities
TOTAL EQUITY AND LIABILITIES
16,718
32,796
49,514
19,414
19,414
7,125
22,975
30,100
49,514
23,913
23,325
56,238
25,763
25,763
9,759
20,716
30,475
56,238
BALANCE SHEET
S$000
Group Increase/
(Decrease)
43.0%
(1.4)%
13.6%
32.7%
32.7%
37.0%
(9.8)%
1.2%
13.6%
Group Increase/
(Decrease)
Earnings per share (in cents)
Basic
Diluted
Net Asset Value per share (in cents)
Grearing Ratio*
Dividend (in cents)
* The Gearing is defined as Net Debts over Total Capital ^ Not meaningful
FY2010 FY2009
1.20
1.20
13.33
0.50
0.50
2.76
2.76
16.10
0.38
1.00
130.0%
130.0%
20.8%
(24.0%)
100.0%
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Report o the Directors
Statement by the Directors
Report o the Independent Auditors
Consolidated Statement o Comprehensive Income
Statements o Financial Position
Consolidated Statement o Changes in EquityConsolidated Statement o Cash Flows
Notes to the Financial Statements
Statistics o Shareholdings
Corporate Governance
Notice o Annual General Meeting
Notice o Book Closure
Appendix
Proxy Form
FINANCIAL CONTENTS
13
16
17
18
19
2021
22
67
69
80
85
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Report of the Directors
We are pleased to submit this annual report to the members of the Company together with the audited financialstatements of the Company and consolidated financial statements of the Company and its subsidiaries (theGroup) for the financial year ended 31 December 2010.
DIRECTORS
The Directors of the Company in office at the date of this report are as follows:-
Tey Kim Hwee (Non-Executive Chairman)
Lim Chong Chen (Managing Director)
Lim Yee Chuan (Executive Director and Financial Controller)Lee Sen Choon (Lead Independent Director)
Wai Chee Leong (Independent Director)
DIRECTORS INTERESTS
According to the register of directors shareholdings kept by the Company for the purposes of Section 164 of theCompanies Act, Chapter 50 of Singapore (the Companies Act), the Directors holding office at the end of thefinancial year (including those held by their spouses and infant children) had an interest in shares of the Companyand in related corporations (other than wholly-owned subsidiaries) as detailed below:-
The Company
Ordinary Shares without par value
At beginning ofthe year
At end ofthe year
At 21 January2011
Lim Chong Chen 112,460,260 112,460,260 112,460,260
Tey Kim Hwee 1,225,560 1,225,560 1,225,560
Lim Yee Chuan 450,000 450,000 450,000
Lee Sen Choon 50,000 50,000 50,000
Wai Chee Leong 50,000 50,000 50,000
By virtue of Section 7 of the Companies Act, Mr Lim Chong Chen is deemed to have interests in the wholly-owned subsidiaries of Rokko Holdings Ltd. at the beginning and at the end of the financial year, and at 21 January2011.
Since the end of the previous financial year, no Director has received or become entitled to receive a benefitwhich is required to be disclosed by reason of a contract made by the Company or a related corporation with theDirector or with a firm of which the director is a member, or with a company in which the Director has a substantialfinancial interest, except as disclosed in note 7 to the accompanying financial statements.
Except as disclosed in this report, no Director who held office at the end of the financial year had interests inshares or debentures of the Company or of related corporations either at the beginning or at the end of thefinancial year.
Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whoseobjects are, or one of whose object is to enable the directors to acquire benefits by means of the acquisition ofshares in or debentures of the Company or any other body corporate.
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Report of the Directors
ROKKO EMPLOYEE SHARE OPTION SCHEME (ROKKO ESOS)
The Rokko ESOS is administered by a Committee (the Committee) comprising Mr Tey Kim Hwee, Mr Wai CheeLeong and Mr Lee Sen Choon. The Rokko ESOS is summarised as follows:-
The Committee shall have the absolute discretion to grant the options with a subscription price at nodiscount, or at a discount of up to a maximum of 20% of the market price, being the average of the lastdealt price of the Companys shares on the Singapore Exchange Securities Trading Limited (the SGX-ST)on the five (5) market days immediately preceding the date of grant of such options.
Subject to the rules and such other conditions as may be imposed by the Committee from time to time,the options granted are exercisable in whole or in part at any time:-
(a) after the first anniversary of the date of grant of the option if the subscription price of the option
granted was at market price: and
(b) after the second anniversary of the date of grant of the option if the subscription price of the optiongranted was at a discount to the market price.
Provided always that an option that is granted to an eligible employee shall be exercised before the tenthanniversary of the date of grant of the option and an option which is granted to a Non-Executive Director(including Independent Director) of the Company or its subsidiaries shall be exercised before the fifthanniversary of the date of grant of that option.
The total number of shares issued and issuable in respect of all options pursuant to Rokko ESOS shall not exceed
15% of the total issued share capital of the Company on the day preceding the relevant date of the option,provided that in relation to controlling shareholder(s) and/or associate(s) of controlling shareholder(s):-
(i) the aggregate number of shares which may be offered by way of grant of options to participants who arecontrolling shareholder(s) and/or associate(s) of controlling shareholder(s) under the Rokko ESOS shall notexceed 25% of the total number of shares available under the Rokko ESOS; and
(ii) the aggregate number of shares which may be offered by way of grant of options to each participant whois a controlling shareholder or his Associate under the Rokko ESOS shall not exceed 10% of the totalnumber of shares available under the Rokko ESOS.
The Rokko ESOS was approved on 4 September 2008 at an Extraordinary General Meeting of the Company.
SHARE OPTIONS
(a) No options were granted by the Company or any of its subsidiaries during the financial year to subscribefor unissued shares of the Company or its subsidiaries.
(b) No shares were issued during the financial year by virtue of the exercise of options to take up unissuedshares of the Company or its subsidiaries.
(c) There were no unissued shares of the Company or its subsidiaries under option at the end of the financialyear.
SHARE PURCHASE MANDATE
At the Annual General Meeting of the Company, on 12 April 2010, the shareholders approved the Share PurchaseMandate to undertake the purchase or acquisition of the ordinary shares of the Company subject to statutorylimitations and certain terms and conditions.
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Report of the Directors
AUDIT COMMITTEE
The Audit Committee of the Company, consisting of al l Non-Executive Directors, is chaired by Mr Lee Sen Choon,an Independent Director, and includes Mr Tey Kim Hwee, Non-Executive Chairman and Mr Wai Chee Leong, anIndependent Director. The Audit Committee has met three (3) times during the financial year and has reviewed thefollowing, where relevant, with the Directors and external auditors of the Company:-
(a) the external and internal audit plans and results of the external and internal auditors examination andevaluation of the Groups systems of internal accounting controls;
(b) the Groups financial and operating results and accounting policies;
(c) the financial statements of the Company and the consolidated financial statements of the Group beforetheir submission to the Directors and external auditors report on those financial statements;
(d) half-yearly and annual announcements as well as the related press releases on the results and financialposition of the Company and the Group;
(e) the co-operation and assistance given by the management to the Groups external auditors; and
(f) the re-appointment of the external auditors of the Group.
The Audit Committee has full access to and has the co-operation of the management and has been given theresources required for it to discharge its function properly. It also has full discretion to invite any Director andexecutive officer to attend its meetings. The external auditors have unrestricted access to the Audit Committee.
The Audit Committee has recommended to the Directors the nomination of Mazars LLP, Public Accountants andCertified Public Accountants, for re-appointment as external auditors of the Group at the forthcoming AnnualGeneral Meeting of the Company.
AUDITORS
Mazars LLP, Public Accountants and Certified Public Accountants, have expressed their willingness to accept re-appointment.
On behalf of the Board of Directors
Tey Kim Hwee Lim Chong Chen
Director Director
Date : 3 March 2011
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Statement by the Directors
In the opinion of the directors ofROKKO HOLDINGS LTD.:
(a) the accompanying financial statements are drawn up so as to give a true and fair view of the state of affairsof the Group and of the Company as at 31 December 2010 and of the results, changes in equity andcash flows of the Group for the year ended on that date in accordance with the provisions of SingaporeCompanies Act, Chapter 50 and Singapore Financial Reporting Standards; and
(b) at the date of this statement there are reasonable grounds to believe that the Company will be able to payits debts as and when they fall due.
The Board of Directors has, on the date of this statement, authorised these financial statements for issue.
On behalf of the Board of Directors
Tey Kim Hwee Lim Chong Chen
Director Director
Date : 3 March 2011
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Report of the Independent Auditorsto the Members of ROKKO HOLDINGS LTD.
Report on the Financial Statements
We have audited the accompanying financial statements ofROKKO HOLDINGS LTD. (the Company) and itssubsidiaries (the Group) which comprise the statement offinancial position of the Group and the Company as at31 December 2010, the consolidated statement of comprehensive income, consolidated statement of changesin equity and consolidated statement of cash flows of the Group for the year then ended, and a summary ofsignificant accounting policies and other explanatory information, as set out on pages 18 to 66.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation offinancial statements that give a true and fair view in accordancewith the provisions of the Singapore Companies Act, Chapter 50 (the Act) and Singapore Financial Reporting
Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide areasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; andtransactions are properly authorised and that they are recorded as necessary to permit the preparation of true andfair profit and loss accounts and balance sheets and to maintain accountability of assets.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conductedour audit in accordance with Singapore Standards on Auditing. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors judgment, including the assessment ofthe risks of material misstatement of the financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entitys preparation offinancial statements thatgive a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.
Opinion
In our opinion, the consolidated financial statements of the Group and the statement of financial position of theCompany are properly drawn up in accordance with the provisions of the Act and Singapore Financial ReportingStandards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31December 2010 and of the results, changes in equity and cash flows of the Group for the year ended on thatdate.
Report on Other Legal and Regulatory Requirements
In our opinion, the accounting and other records required by the Act to be kept by the Company and by thosesubsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance withthe provisions of the Act.
MAZARS LLPPUBLIC ACCOUNTANTS ANDCERTIFIED PUBLIC ACCOUNTANTS
Singapore: 3 March 2011
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Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2010
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
GROUP
Note 2010 2009
S$ S$
Revenue 3 42,584,498 29,495,246
Cost of sales (29,377,273) (20,316,604)
Gross profit 13,207,225 9,178,642
Other income 4 716,948 339,970
Distribution costs (2,127,945) (1,851,235)
Administrative expenses (4,914,887) (3,999,296)
Other operating expenses (1,507,985) (1,137,737)Finance costs 5 (555,388) (500,835)
Profit before taxation 6 4,817,968 2,029,509
Income tax expense 8 (555,907) (268,279)
Net profit for the year 4,262,061 1,761,230
Other comprehensive income:
Exchange differences on translation of foreign operations, net of tax (355,798) (62,309)
Surplus on revaluation of property, plant and equipment, net of tax 20 2,050,067
Other comprehensive income for the year 1,694,269 (62,309)
Total comprehensive income for the year 5,956,330 1,698,921
Profit attributable to equity holders of the Company 4,262,061 1,761,230
Total comprehensive income attributable to:
Total comprehensive income attributable to equity holders ofthe Company 5,956,330 1,698,921
Earnings per share for profit attributable to the equity holdersof the Company (cents)
- Basic 31 2.76 1.20
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Statements of Financial Positionas at 31 December 2010
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
Group Company
Note 31/12/2010 31/12/2009 31/12/2010 31/12/2009
S$ S$ S$ S$
Assets
Non-current assetsProperty, plant and equipment 9 21,696,390 14,364,607 212,777 257,701
Goodwill 10 760,828 760,828
Deferred development expenditure 11 1,455,525 1,592,577
Investment in subsidiaries 12 6,346,301 6,346,301
23,912,743 16,718,012 6,559,078 6,604,002
Current assetsInventories 13 13,802,848 12,005,880
Trade and other receivables 14 5,755,417 11,826,119 28,271 35,885
Amount owing by subsidiaries 15 5,147,401 1,256,278
Cash and cash equivalents 16 12,767,104 8,963,618 1,361,239 3,066,085
32,325,369 32,795,617 6,536,911 4,358,248
Total assets 56,238,112 49,513,629 13,095,989 10,962,250
Equity
Equity attributable to equity holdersof the Company
Share capital 17 12,442,108 10,432,808 12,442,108 10,432,808Treasury shares 18 (525,717) (435,947) (525,717) (435,947)
Foreign currency translation reserves 19 (908,100) (552,302)
Revaluation reserve 20 2,050,067
Accumulated profits 12,704,531 9,969,105 914,008 648,121
Total equity 25,762,889 19,413,664 12,830,399 10,644,982
Liabilities
Non-current liabilitiesInterest-bearing liabilities 21 8,259,316 5,891,137 49,633
Deferred tax liabilities 22 1,499,814 1,234,179 20,082 27,634
9,759,130 7,125,316 20,082 77,267
Current liabilitiesTrade and other payables 23 9,296,390 14,954,741 173,175 187,664
Amount owing to directors 24 533,629 522,305
Interest-bearing liabilities 21 10,620,765 7,371,531 49,633 52,177
Provision for taxation 265,309 126,072 22,700 160
20,716,093 22,974,649 245,508 240,001
Total liabilities 30,475,223 30,099,965 265,590 317,268
Total equity and liabilities 56,238,112 49,513,629 13,095,989 10,962,250
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Consolidated Statement of Changes in Equityfor the year ended 31 December 2010
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
GROUP Note
Attributable to Equity Holders of the Company
ShareCapital
TreasuryShares
ForeignCurrency
TranslationReserves
RevaluationReserve
AccumulatedProfits Total Equity
S$ S$ S$ S$ S$ S$
At 1 January 2010 10,432,808 (435,947) (552,302) 9,969,105 19,413,664
Purchase of treasury
shares 18 (89,770) (89,770)
Net proceeds from
issuance of new shares 17 2,009,300 2,009,300
Dividends paid 30 (1,526,635) (1,526,635)
Total comprehensive
income for the year (355,798) 2,050,067 4,262,061 5,956,330
At 31 December 2010 12,442,108 (525,717) (908,100) 2,050,067 12,704,531 25,762,889
At 1 January 2009 10,432,808 (100,218) (489,993) 8,499,623 18,342,220
Purchase of treasury
shares 18 (335,729) (335,729)
Dividends paid 30 (291,748) (291,748)
Total comprehensive
income for the year (62,309) 1,761,230 1,698,921
At 31 December 2009 10,432,808 (435,947) (552,302) 9,969,105 19,413,664
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Consolidated Statement of Cash Flowsfor the year ended 31 December 2010
The annexed notes form an integral part of and should be read in conjunction with these financial statements.
GROUPNote 2010 2009
S$ S$
Operating activitiesProfit before income tax 4,817,968 2,029,509Adjustments for:-Depreciation of property, plant and equipment 9 2,329,866 1,984,493Amortisation of research and development expenditure 11 262,892 109,056Write back of impairment of property, plant and equipment made previously 6 (412,516) Revaluation loss on certain property, plant and equipment 6 250,090 Gain on disposal of property, plant and equipment 4 (1,299) (33,200)(Write back)/allowance for slow moving and obsolete inventories 6 (80,019) 317,312Write back of provision for equipment warranty no longer required 6 (51,642) Obsolete inventories written off 6 688,939Interest income 4 (6,156) (1,568)Interest expense 5 555,388 500,835Operating profit before working capital changes 7,664,572 5,595,376
Changes in working capital:-Inventories (1,716,949) (1,565,586)Trade and other receivables 6,186,055 (7,427,382)Trade and other payables (6,464,698) 9,583,866Trust receipts 3,581,139 (2,418)Invoice financing (638,159) 1,838,667Cash generated from operations 8,611,960 8,022,523
Interest received 6,156 1,568Income tax paid (153,174) (340,753)Cash flow from operating activities 8,464,942 7,683,338
Financing activitiesRepayment of bank loans and overdrafts (1,263,003) (435,673)Finance lease repayments/obtained (net of repayment) (422,563) (1,612,466)Proceeds from bank loans 4,360,000 2,500,000Amount owing to a director (41,866)Interest paid (555,388) (500,835)Dividend paid 30 (1,526,635) (291,748)Proceeds from issue of new shares(net) 17 2,009,300 Purchase of treasury shares 18 (89,770) (335,729)
Cash flow generated from/(used in) financing activities 2,511,941 (718,317)
Investing activitiesPurchase of property, plant and equipment (6,596,613) (1,076,965)Proceeds from disposal of property, plant and equipment 54,217 27,470Deferred development expenditure (125,840) (554,590)Cash flow used in investing activities (6,668,236) (1,604,085)
Net increase in cash and cash equivalents 4,308,647 5,360,936Effect of currency translation on cash and cash equivalents (505,161) (30,893)Cash and cash equivalents at beginning of year 8,963,618 3,633,575Cash and cash equivalents at end of Year 16 12,767,104 8,963,618
During the financial year ended 31 December 2010, the Group acquired property, plant and equipment with
an aggregate cost of approximately S$7,464,802 (2009: S$1,872,774). Payments of S$6,596,613 (2009:S$1,076,965) were made for the acquisitions, of which S$3,394,528 (2009: Nil) was financed by bank loan andfinance lease and remaining S$3,212,285 (2009: S$1,076,965) by internal cash flow. As at 31 December 2010,S$857,989 (2009: S$795,809) was owing to trade and other payables.
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Notes to the Financial Statements31 December 2010
These notes form an integral part of the financial statements. These financial statements have been authorised forissue by the board of directors on 3 March 2011.
1. DOMICILE AND ACTIVITIES
Rokko Holdings Ltd. (the Company) was incorporated in Singapore on 30 September 2003 as a publiccompany limited by shares.
The Companys registered office is at 61 Kaki Bukit Road 2, Singapore 417869. The principal activity of theCompany is that of investment holding. The principal activities of its subsidiaries are as set out in Note 12.
The consolidated financial statements relate to the Company and its subsidiaries (herein referred to as theGroup).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
These financial statements have been prepared in accordance with Singapore Financial ReportingStandards (FRS).
During the year, the Group and the Company adopted the new or revised FRS and Interpretation to FRSs(INT FRS) that are mandatory for application from that date. Changes to the Groups accounting policieshave been made as required, in accordance with the relevant transitional provisions in the respective FRSand INT FRS.
There are no significant changes to the Financial Statements of the Group and the Company upon theadoption of these new standards, other than the Change in accounting policy for revaluation of theproperties of the Group.
On 1 January 2010, the Group and the Company have adopted all applicable FRS or INT FRS as follows:
FRS 27 (2009) Consolidated and Separate Financial Statements which became effective for annualperiods beginning on or after 1 July 2009 requires an entity to account for acquisitions and disposals thatdo not result in a change of control as equity transactions. Transactions resulting in a loss of controlwould cause a gain or loss to be recognised in profit or loss notwithstanding a residual interest remainsin the acquiree after the disposal. Losses applicable to non-controlling interests, including negativeother comprehensive income are allocated to non-controlling interests even if doing so causes the non-controlling interests to have a negative balance.
FRS 103 (2009) Business Combinations which became effective for annual periods beginning on or
after 1 July 2009 requires the acquirer to expense all acquisition related costs in a business combinationin the period as incurred, with contingent consideration acquired to be measured at fair value at acquisitiondate and subsequently re-measure through profit or loss. The acquirer can elect to measure any non-controlling interest at fair value at the acquisition date, or at its proportionate interest in the fair value of theidentifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. When an acquisitionis achieved in successive share purchases (step acquisition), the identifiable assets and liabilities of theacquiree are recognised at fair value when control is obtained; and a gain or loss is recognised in profitor loss for the difference between the fair value of the previously held equity interest in the acquiree andits carrying amount. Any amount relating to previously held equity interests in the acquiree that wasrecognised directly in other comprehensive income is reclassified and included in the calculation of gain orloss recognised in profit or loss. Acquisitions of additional non-controlling equity interests after the businesscombinations are accounted for as equity transactions. Disposals of equity interests while retaining controlare accounted for as equity transactions. Transactions resulting in a loss of control result in a gain or lossbeing recognised in profit or loss. The gain or loss includes a remeasurement to fair value of any retainedequity interest in the investee.
Amendments to FRS 7 Cash Flow Statements (effective for annual periods beginning on or after 1January 2010) Under the amendment, only expenditures that result in a recognised asset in the statementoffinancial position can be classified as investing activities in the statement of cash flows. Previously, suchexpenditure could be classified as investing activities in the statement of cash flows.The adoption of theabove FRS did not have any significant impact on the Groups accounting policy and financial statements.
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Notes to the Financial Statements31 December 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
2.1 Basis of preparation (Contd)
Changes in accounting policy for Property, Plant and Equipment
On 31 December 2010, the Group has changed its accounting policy to revalue its leasehold buildings attheir fair values in accordance with FRS 16 - Property, Plant and Equipment and under that standard, therevaluation has been accounted for prospectively. The fair value has been determined by an independentprofessional valuer on 23 November 2010 and the Group intends to revalue its leasehold buildings everythree to five years. The accumulated depreciation at the date of revaluation was eliminated against thegross carrying amount of the asset and the net amount restated to the revalued amount of the assetresulting in a revaluation surplus of S$2,050,067 being recognised as Other Comprehensive Income during
the financial year ended 31 December 2010. No deferred tax was recognised on the revaluation gain asthese properties are used for the production of income and no capital gains taxes are levied upon the saleof such properties as the Group does not engage in the trading of properties.
If an assets carrying amount is increased as a result of a revaluation, the increase shall be recognisedin other comprehensive income and accumulated in equity under the heading of revaluation reserve.However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluationdecrease of the same asset previously recognised in profit or loss. If an assets carrying amount isdecreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, thedecrease shall be recognised in other comprehensive income to the extent of any credit balance existing inthe revaluation reserve in respect of that asset. The decrease recognised in other comprehensive incomereduces the amount accumulated in equity under the heading of revaluation reserve.
The effect of the change in accounting policy on revaluation of the Groups factory buildings for the yearended 31 December 2010 is as follows:
Description
Year Ended 31Dec 2010
Charge/(Credit)to profit or loss
S$
Write back of impairment loss in respect of a leasehold building previously recognisedin profit and loss in prior years upon revaluation during the year (412,516)
Revaluation loss in respect of another leasehold building upon revaluation duringthe year 250,090
Critical accounting estimates and judgements
Estimates and judgements are currently evaluated and are based on historical experience and other factorsincluding expectations of future events that are believed to be reasonable under the circumstances. Apartfrom information disclosed elsewhere in these financial statements, the following summarises estimates andassumptions that have a significant risk of causing a material adjustment to the carrying amounts of assetsand liabilities within the next financial year and significant judgements made in the process of applying theGroups accounting policies:
(i) Impairment of receivables
The Group makes allowance for impairment based on an assessment of the recoverability of tradeand other receivables. Allowance is applied to trade and other receivables where events or changes
in circumstances indicate that the balances may not be collectible. The identification of doubtfulreceivables requires the use of judgement and estimates. Where the expectation is different fromthe original estimate, such difference will impact the carrying amount of trade and other receivablesand the allowance for impairment in the financial year in which such estimate has been changed.The carrying value of trade and other receivables at reporting date is disclosed in Note 14 to thefinancial statements.
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Notes to the Financial Statements31 December 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
2.1 Basis of preparation (Contd)
Critical accounting estimates and judgements (contd)
(ii) Impairment of goodwill and deferred development expenditure
In determining whether goodwill and deferred development expenditure is impaired, this requiresan estimation of the value in use of these assets. The value in use calculation requires the Groupto estimate the future cash flows expected to arise from these assets and a suitable discount ratein order to calculate present value. Actual transactions will take place at a later date which may
differ from the estimates made by the Group. Further details of the key assumptions applied in theimpairment assessment of goodwill and deferred development expenditure are given in Notes 10and 11 respectively.
(iii) Depreciation of property, plant and equipment
The cost of property, plant and equipment is depreciated on a straight-line basis over theireconomic useful lives estimated to be within 3-50 years, net of residual value. Changes in theexpected level of usage and technological developments could impact the economic useful livesand the residual values of these assets, therefore future depreciation could be revised. The carryingvalue of property, plant and equipment at the reporting date is disclosed in Note 9 to the financialstatements.
(iv) Net realisable value of inventories
Net realisable value of inventories is the estimated selling price in the ordinary course of business,less estimated costs of completion and selling expenses. These estimates are based on the currentmarket condition and the historical experience of selling products of similar nature. It could changesignificantly as a result of competitor actions in response to severe industry cycles. Management willreassess the estimations at each reporting date. The carrying value of inventories at the reportingdate is disclosed in Note 13 to the financial statements.
(v) Income taxes
The Group is subject to income taxes in different jurisdictions. Significant judgment is required indetermining the capital allowance and deductibility of certain expenses during the estimation of the
provision for income taxes. There are many transactions and calculations for which the ultimate taxdetermination is uncertain during the ordinary course of business. The Group recognises liabilitiesfor anticipated tax audit issues based on estimation of whether additional taxes will be due. Wherethe final tax outcome of these matters is different from the amounts that were initially recorded, suchdifferences will impact the income tax and deferred income tax provisions in the year in which suchdetermination is made.
(vi) Impairment offinancial assets
The Group follows the guidance of FRS 39 Financial Instruments: Recognition and Measurement(FRS 39) in determining when an asset is impaired in respect of its financial assets. Thisassessment requires significant judgement. The Group evaluates, among other factors, the durationand extent to which the fair value of an asset is less than its cost; and the financial health of and
near-term business outlook for the asset, including factors such as industry and sector performance,changes in technology and operational and financing cash flow.
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Notes to the Financial Statements31 December 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
2.2 Basis of consolidation
Subsidiary companies
A subsidiary is an entity over which the Group, has the power to govern the financial and operating policiesso as to obtain benefits from its activities.
In the Companys separate financial statements, investments in subsidiary companies are accounted for atcost less any accumulated impairment losses.
Consolidation
The consolidated financial statements comprise the financial statements of the Company and itssubsidiaries as at the end of the reporting period. The financial statements of the subsidiaries used inthe preparation of the consolidated financial statements are prepared for the same reporting date asthe Company. Consistent accounting policies are applied to like transactions and events in similarcircumstances.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-grouptransactions are eliminated in full.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtainscontrol, and continue to be consolidated until the date that such control ceases.
Business combinations
Business combinations are accounted for by applying the acquisition method. Identifiable assets acquiredand liabilities assumed in a business combination are measured initially at their fair values at the acquisitiondate. Acquisition-related costs are recognised as expenses in the periods in which the costs are incurredand the services are received.
When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriateclassification and designation in accordance with the contractual terms, economic circumstances andpertinent conditions as at the acquisition date. This includes the separation of embedded derivatives inhost contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to
be an asset or liability, will be recognised in accordance with FRS 39 either in profit or loss or as change toother comprehensive income. If the contingent consideration is classified as equity, it is not be remeasureduntil it is finally settled within equity.
In business combinations achieved in stages, previously held equity interests in the acquiree areremeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profitor loss.
The Group elects for each individual business combination, whether non-controlling interest in the acquiree(if any) is recognised on the acquisition date at fair value, or at the non-controlling interests proportionateshare of the acquiree identifiable net assets.
Any excess of the sum of the fair value of the consideration transferred in the business combination,the amount of non-controlling interest in the acquiree (if any), and the fair value of the Groups previously
held equity interest in the acquiree (if any), over the net fair value of the acquirees identi fiable assets andliabilities is recorded as goodwill. The accounting policy for goodwill is set out in Note 2.17. In instanceswhere the latter amount exceeds the former, the excess is recognised as gain on bargain purchase in profitor loss on the acquisition date.
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Notes to the Financial Statements31 December 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
2.3 Functional and presentation currency
The individual financial statements of each entity within the Group are presented in the currency of theprimary economic environment in which the entity operates (the functional currency). The functionalcurrency of the Company is the Singapore dollar. The consolidated financial statements of the Group andthe statement offinancial position of the Company are presented in Singapore dollars.
2.4 Foreign currency transactions
Transactions in foreign currencies are translated at foreign exchange rates ruling at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date aretranslated into Singapore dollars at foreign exchange rates ruling at that date. Foreign exchange differencesarising from translation are recognised in profit or loss. Non-monetary assets and liabilities measured atcost in a foreign currency are translated using exchange rates at the date of the transaction. Non-monetaryassets and liabilities measured at fair value in foreign currencies are translated to Singapore dollars atforeign exchange rates ruling at the dates the fair value was determined.
Foreign currency differences arising on retranslation are recognised in profit or loss, except for differencesarising on the retranslation of monetary items that in substance form part of the Groups net investment in aforeign operation.
2.5 Foreign operations
The assets and liabilities of foreign operations are translated to Singapore dollars at exchange ratesprevailing at the reporting date. The income and expenses of foreign operations are translated to Singaporedollars at average rates for the year.
Foreign currency differences are recognised in the foreign currency translation reserves. When a foreignoperation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserves istransferred to profit or loss.
2.6 Net investment in foreign operations
Exchange differences arising from monetary items that in substance form part of the Companys netinvestment in foreign operations are recognised in the Companys profit or loss. Such exchange differencesare reclassified to the foreign currency translation reserves in the consolidated financial statements. When
the hedged net investment is disposed of, the cumulative amount in the foreign currency translationreserves is transferred to profit or loss.
2.7 Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Groupand the revenue can be measured reliably. Revenue is measured at the fair value of consideration receivedor receivable.
(i) Sale of goods
Revenue is recognised when goods are delivered at the customers premises or collected by thecustomers at the Groups premises which is taken to be the point in time when the customer has
accepted the goods/services and the related risks and rewards of ownership.
(ii) Interest income
Interest income is recognised on a time proportion basis using the effective interest method.
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2.7 Revenue recognition (contd)
(iii) Government grant
Government grants are not recognised until there is reasonable assurance that the grants will bereceived and that the Group will comply with conditions applying to them. Grants are recognised inprofit and loss on a systematic basis matching them with the related costs for which the grants areintended to compensate.
(iv) Job Credit Scheme
Cash grants received from the government in relation to the Jobs Credit Scheme are recognised asincome upon receipt.
2.8 Employee benefits
Contributions to defined contribution plans including Central Provident Fund (CPF) contributions arerecognised as an expense in the profit and loss as incurred.
(i) Short term benefits
Salaries, wages, allowances, bonuses and social security contributions are recognised as anexpense in the financial year in which the services are rendered by the employees of the Group.
Short term accumulating compensated absences such as paid annual leave are recognisedwhen services are rendered by employees that increase their entitlements to future compensatedabsences, and short term non-accumulating compensated absences such as sick leave arerecognised when the absences occur. Non-monetary benefits such as medical care and other staffrelated expenses are recognised as an expense in the period when incurred.
(ii) Defined contribution plan
As required by law, companies in Singapore and Malaysia make contributions to the CPF andEmployees Provident Fund (EPF) respectively. Such contributions are recognised as an expense inthe financial year to which they relate.
(iii) Termination benefits
Employee termination benefits are recognised only either after an agreement is in place with theappropriate employee representatives specifying the terms of redundancy or after individualemployees have been advised of the specific terms.
(iv) Share based payments
The Rokko Employee Share Option Scheme (Rokko ESOS) has been put in place to grantoptions to eligible employees. Details of the Rokko ESOS are disclosed in the Directors Report. The fair value of options is recognised as an employee expense with a corresponding increasein fair value reserve. The fair value is measured at grant date and spread over the period duringwhich the employees become unconditionally entitled to the options. At each reporting date, theCompany revises its estimates of the number of options that are expected to become exercisable.
It recognises the impact of the revision of original estimates in employee expense and in acorresponding adjustment to equity over the remaining vesting period. The proceeds receivednet of any directly attributable transaction costs are credited to share capital when the options areexercised. No shares or share options have been issued during the year.
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Notes to the Financial Statements31 December 2010
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2.9 Operating leases
Where the Group has the use of assets under operating leases, payments made under the leases arerecognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives receivedare recognised in profit or loss as an integral part of the total lease payments made. Contingent rentals arecharged to profit or loss in the accounting period in which they are incurred.
2.10 Impairment
Impairment offinancial assets
Afinancial asset is considered to be impaired if objective evidence indicates that one or more events havehad a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as thedifference between its carrying amount, and the present value of the estimated future cash flowsdiscounted at the original effective interest rate. Individually significant financial assets are tested forimpairment on an individual basis. The remaining financial assets are assessed collectively in groups thatshare similar credit risk characteristics. All impairment losses are recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after theimpairment loss was recognised. For financial assets measured at amortised cost, the reversal isrecognised in profit or loss.
Impairment of non-financial assets
The carrying amounts of the Groups non-financial assets, other than inventories are reviewed at eachreporting date to determine whether there is any indication of impairment. If any such indication exists, theassets recoverable amounts are estimated. An impairment loss is recognised if the carrying amount of anasset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallestidentifiable asset group that generates cash flows that largely are independent from other assets andgroups.
Impairment losses are recognised in profit or loss unless it reverses a previous revaluation, where therevaluation was taken to the revaluation reserve account. In this case, the impairment is also recognised inprofit and loss up to the amount previous revaluation. Impairment losses recognised in respect of cash-
generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units andthen to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
Calculation of recoverable amount
The recoverable amount of an asset or cash-generating unit is the greater of their fair value less costs tosell and value in use. In assessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current market assessments of the time value ofmoney and the risks specific to the asset. For an asset that does not generate largely independent cashinflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Reversals of impairment
An impairment loss is reversed if there has been a change in the estimates used to determine therecoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount doesnot exceed the carrying amount that would have been determined, net of depreciation or amortisation, if noimpairment loss had been recognised.
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Notes to the Financial Statements31 December 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)2.11 Finance costs
Interest expense and similar charges are expensed to profit or loss in the period in which they are incurred,except to the extent that they are capitalised as being directly attributable to the acquisition, construction orproduction of qualifying assets. Finance costs are captitalised until the assets are substantially completedfor their intended use or sale.
The interest component of interest-bearing liabilities is recognised in profit or loss using the effective interestmethod.
2.12 Income taxes
Income tax on the results for the year comprises current and deferred tax. Income tax is recognised inprofit or loss except to the extent that it relates to a business combination, or items recognised directly inthe statement of comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using taxrates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respectof previous years.
Deferred tax is provided in full on temporary differences arising between the tax bases of assets andliabilities and their carrying amounts in the financial statements. Deferred tax is, however, not recognisedon temporary differences arising from the initial recognition of goodwill or assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit or loss anddifferences relating to investments in subsidiaries to the extent that it is probable that they will not reversein the foreseeable future and the timing of reversal of the temporary differences can be controlled by theGroup. The amount of deferred tax provided is based on the expected manner of realisation or settlementof the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at thereporting date.
A deferred tax asset is recognised to the extent that it is virtually certain that future taxable profit will beavailable against which the temporary differences and tax losses can be utilised.
2.13 Financial instruments
Financial assets within the scope of FRS 39 are classified as either financial assets at fair value through
profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, asappropriate. Financial assets are recognised on the statement of financial position when, and only when,the Group becomes a party to the contractual provisions of the financial instrument. The Group does nothold financial assets at fair value through profit or loss or held-to-maturity financial assets or available-for-sale financial assets.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of financialassets not at fair value through profit or loss, directly attributable transaction costs. The Group determinesthe classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each year-end. Financial assets are derecognised if the Groups contractualrights to the cash flows from the financial assets expire or if the Group transfers the financial asset toanother party without retaining control or transfers substantially all the risks and rewards of the asset.
All regular way purchases and sales of financial assets are recognised on the trade date i.e. the datethat the Group commits to purchase the asset or sell the asset. Regular way purchases or sales arepurchases or sales offinancial assets that require delivery of assets within the period generally establishedby regulation or convention in the marketplace concerned.
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2.13 Financial instruments (Contd)
Loans and receivables
Non-derivative financial assets with fixed or determinable payments that are not quoted in an active marketare classified as loans and receivables. Such assets are carried at amortised cost using the effectiveinterest method. Gains and losses are recognised in profit or loss when the loans and receivables arederecognised or impaired, as well as through the amortisation process. Trade and other receivables,amount owing by subsidiaries, cash and cash equivalents of the Group are classified as loans andreceivables.
Financial liabilities
Financial liabilities within the scope of FRS 39 are classified as either financial liabilities measured atamortised costs such as trade and other payables, amount owing to a director and interest-bearingliabilities.
Financial liabilities are derecognised if the Groups obligations specified in the contract expire or aredischarged or cancelled.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial instrument and
of allocating interest income or expense over the relevant period. The effective interest rate is the ratethat exactly discounts estimated future cash receipts and payments (including all fees on points paid orreceived that form an integral part of the effective interest rate, transaction costs and other premiums ordiscounts) through the expected life of the financial instruments or where appropriate, a shorter period.Income and expense is recognised on an effective interest basis for debt instruments other than thosefinancial instruments at fair value through profit or loss.
2.14 Derecognition of financial assets and liabilities
(a) Financial assets
Financial assets are derecognised from the statement of financial position when the Group hastransferred substantially all risks and rewards of ownership.
(b) Financial liabilities
Afinancial liability is derecognised from the statement offinancial position when the obligation underthe liability is discharge, cancelled or expired.
2.15 Intra-group financial guarantees
Intra-group financial guarantees are financial instruments issued by the Group that requires the issuer tomake specified payments to reimburse the holder for the loss it incurs because a speci fied debtor fails tomeet payment when due in accordance with the original or modified terms of a debt instrument.
Financial guarantees are recognised initially at fair value and classified as financial liabilities. Subsequentto initial measurement, the financial guarantee is stated at higher of the initial fair value less cumulativeamortisation and the amount that would be recognised if they were accounted for as contingent liabilities.When financial guarantees are terminated before their original expiry date, the carrying amount of thefinancial guarantees is transferred to profit or loss.
Intra group transactions are eliminated on consolidation.
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Notes to the Financial Statements31 December 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
2.16 Property, plant and equipment
(a) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation andaccumulated impairment losses.
(b) Leased assets
Property, plant and equipment acquired through finance leases are capitalised at the lower of its
fair value and the present value of the minimum lease payments at the inception of the lease,less accumulated depreciation and impairment losses. Lease payments are apportioned betweenfinance charges and reductions of the lease liability so as to achieve a constant rate of interest onthe remaining balance of the liability. Finance charges are charged directly against the profit or lossaccount. Capitalised leased assets are depreciated over the shorter of the economic useful life ofthe asset and the lease terms.
(c) Depreciation
Freehold land is not depreciated. Depreciation is provided on the straight-line basis so as to writeoff the cost of property, plant and equipment over their estimated useful rates as follows:
Furniture and fixtures 10 331/3%
Factory renovation 5 331/3%
Office equipment 10 331/3%
Motor vehicles 121/2 20%
Plant and machinery 10 25%
Tool and equipment 33 1/3%
Leasehold buildings 2% or over the remaining lease period,whichever is shorter
(d) Cost
Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts
of an item of property, plant and equipment have different useful lives, they are accounted for asseparate items (major components) of property, plant and equipment. The cost of replacing partof an item of property, plant and equipment is recognised in the carrying amount of the item ifit is probable that the future economic benefits embodied within the part will flow to the Groupand its cost can be measured reliably. The costs of the day-to-day servicing of property, plant andequipment are recognised in the profit or loss.
Fully depreciated assets are retained in the consolidated financial statements until they are nolonger in use. The gain or loss on disposal or retirement of an item of property, plant and equipmentrecognised in profit or loss is the difference between the net sale proceeds and the carrying amountof the relevant asset.
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Notes to the Financial Statements31 December 2010
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2.16 Property, plant and equipment (Contd)
(e) Subsequent measurement
Subsequent to recognition, property, plant and equipment are measured at cost less accumulateddepreciation and any accumulated impairment losses. When significant parts of property, plantand equipment are required to be replaced in intervals, the Group recognises such parts asindividual assets with specific useful lives and depreciation, respectively. Likewise, when a majorinspection is performed, its cost is recognised in the carrying amount of the plant and equipmentas a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are
recognised in profit or loss as incurred.
Leasehold buildings are measured at fair value less accumulated depreciation and impairmentlosses recognised after the date of the revaluation. Valuations are performed every three tofive years to ensure that the carrying amount does not differ materially from the fair value of theleasehold buildings at the end of the reporting period.
Any revaluation surplus is recognised in other comprehensive income and accumulated in equityunder the revaluation reserve, except to the extent that it reverses a revaluation decrease of thesame asset previously recognised in profit or loss, in which case the increase is recognised in profitor loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets anexisting surplus on the same asset carried in the revaluation reserve. Any accumulated depreciationas at the revaluation date is eliminated against the gross carrying amount of the asset and the
net amount is restated to the revalued amount of the asset. The revaluation surplus included inthe asset revaluation reserve in respect of an asset is transferred directly to retained earnings onretirement or disposal of the asset.
2.17 Goodwill
Goodwill represents the excess of:
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
if the business combination is achieved in stages, the fair value of the existing equity interest in theacquiree,
over the net recognised amount (generally fair value) of the identifiable assets acquired and liabilitiesassumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Goodwill is measured at cost less accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the Groups cash-gener